Interested in what changes you will be making during the next three years and why?
Hi belleran,
This is how I see things this week....
Shares & their earnings are currently fair value (some would say fully valued) - I expect them to rise by another 30-50% over the next 1-3 years. The beginning of the end for shares has probably started with the US housing slump/mortgage defaults/CDO problems. But it will take a lot more bad news before any crash - however, when the crash comes it will be sudden.
Last FY the ASX gained 33% - it's expected to be a good profit reporting season with earnings up 10%ish. The ASX at 7000 by early 2008 would be a reasonable figure based on the current 6300 + another 10% based those improved earnings. There won't be much M&A factor, but there will be the super & future fund factors. It's possible 'the herd' will notice the headlines & drive the ASX way past 7000.
Interest rates are expected to rise a little over the next 12 months. The following year they could go either way - to much will happen between now & then to have more than a 50% chance of being right.
The last (East coast) boom ended in early 2003, it's been flat for the 4 years since then, so adjusting for inflation prices have actually fallen by 10%. I'd expect low growth at a little above inflation for the next couple of years and hope that rental yields rise faster to catch up. With luck IP will become relatively good value within a couple of years - relative to it's historical yields & also relative to shares.
So there are likely 4 scenarios -
- Share market gets overvalued/risky - I'll start buying put options as insurance. And probably decide that even though IP isn't really good value, it's less risky than shares, so will start buying again. If this happens scenario happens first then it's likely that yields on IP are comparable with the overvalued share yields, so it will be an easy decision.
- IP gets to be better value/lower risk than shares or good value on a historical basis due to rising rents - I'll sell the riskier/overvalued shares progressively & buy quality IP that yields at least as much as the shares I'm selling. I'll wear the CGT.
- In the unlikely event that IP never becomes good value/low risk again, I'll leave my quality blue chip income paying shares where they are and ignore their price, and live off the income they produce. And I'll keep my existing IPs.
- Sharemarket crashes unexpectedly due to left field event - I'd hope that dividends would be relatively unaffected. Rents are unlikely to be adversely affected.
My preferred scenario would be for IP to become good value before there's enough bad news to depress the global economy and share market.
I'll be happy to miss the last bit (or lot) of the ASX rise if I'm mostly invested in lower risk but equally high yielding IP assets.
IRs are a bit of a wild card, so there could be completely different scenarios to consider - that'll be an interesting thought process I'll save till later...
Of course, next week the world will change, so I'll have a slightly different view.....
Cheers Keith
